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Pricing Strategy
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GBUS 207: PRINCIPLES OF MARKETING
Presentation Outline
• What Is a Price?
• New Product Pricing Strategies
• Product Mix Pricing Strategies
• Price Adjustment Strategies
• Price Changes
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
Price:- the amount of money charged for a product or service,
or the sum of the values that customers exchange for the
benefits of having or using the product or service. (Kotler &
Armstrong)
***
- one of the most important determinants of a firm’s market
share and profitability.
- only marketing mix element that produces revenue and not
costs.
- also one of the most flexible elements
- customer perceptions of the product’s value determine the
ceiling for prices whilst product costs set the floor for prices.
Price charged should fall between these two parameters.
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
Factors to consider when setting prices include: customer
perceptions of value, company and product costs as well as
other internal & external factors.
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
Two types of Value-based pricing:
a) good-value pricing – offering just the right combination of quality and
good service at a fair price eg. Everyday low prices (EDLP)
b) value-added pricing – attaching value-added features and services to
differentiate a company’s offers and charging higher
Convince
Design a Determine Set price Buyers of
good product product costs based on cost product’s
value
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
Types of Costs:
a) Fixed costs (overheads) – costs that do not vary with production or
sales level eg. Rent,
b) Variable costs – costs that vary directly with the level of production.eg.
Raw materials,
Total costs = sum of fixed costs and variable costs for any given level of
production.
External factors include: the nature of the market & demand, competitors’
strategies &prices, and other environmental factors.
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
Internal factors
• Overall marketing strategy
- firm’s pricing strategy is largely determined by its decisions on market
positioning
• Objectives
- does the company want to attract new customers, profitably retain existing
ones
- does it want to increase barriers to entry or match competition
• Marketing Mix
- decisions on price must be coordinated with product design, distribution and
promotional decisions.
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GBUS 207: PRINCIPLES OF MARKETING
What Is a Price?
External factors
• The Market and Demand
- Pricing in Different Types of Markets i.e. pure competition, monopolistic
competition, oligopolistic competition and pure monopoly.
- Analyzing the Price-Demand Relationship i.e. demand curve
- Price Elasticity of Demand i.e. responsiveness of demand to price changes
Price-Adjustment Strategies
1. Discount & allowance pricing:
Reducing prices to reward customers responses such as paying early or
promoting the product eg. Cash or quantity
2. Segmented pricing or yield / revenue management:
Adjusting prices to allow for differences in customers, products or locations
and not costs. Forms – Customer-segment: Product form pricing: location
based
3. Psychological pricing:
Adjusting prices for psychological effect and not just economics eg. Reference
pricing in department stores, prices ending in 9, SALE signs, price-matching
guarantees….
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GBUS 207: PRINCIPLES OF MARKETING
Price-Adjustment Strategies
Price-Adjustment Strategies
4. Promotional pricing:
Temporarily reducing prices to increase short-run sales
5. Geographical pricing:
Adjusting prices to account for the geographical location of customers
eg. FOB origin, uniform-delivered, zone, basing-point, freight-absorption,
6. Dynamic pricing:
Adjusting prices continually to meet the characteristics and needs of
individual customers and situations
7. International pricing:
Adjusting prices for international markets
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GBUS 207: PRINCIPLES OF MARKETING
Price Changes
Companies are faced with situations in which they must either initiate price
changes or respond to price changes by competitors. Note that in both cases,
the organization must anticipate possible buyer and competitor reactions.
Yes
Yes
No Raise perceived value
Can/should effective
action be taken?j Improve quality and
increase price
Yes
Launch low-price
“fighting brand”
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GBUS 207: PRINCIPLES OF MARKETING
TRIALS
1. Companies bringing out a new product can choose between
two broad strategies: market-skimming pricing and market-
penetration pricing. Distinguish between the two.